Turkish consumers sandwiched between high taxes, crude prices, dollar

Turkish consumers sandwiched between high taxes, crude prices, dollar

The newest rise brought the pump price of a liter (nearly a quarter gallon) of 95-octane unleaded gasoline in İstanbul up to TL 4.70 ($2.64) from the earlier TL 4.61. (Photo: Today's Zaman, Kürşat Bayhan)

March 29, 2012, Thursday/ 17:12:00

Now, it is no longer a surprise for people on the streets to hear that gasoline prices have increased again.

Yet their anger is piling up against a government that faces a difficult task in trying to help reduce the burden on the consumers' shoulders at a time when input costs are steadily rising and high taxes cannot be scrapped overnight.

The price drivers pay for filling their vehicles' tanks -- if some are still able to do so -- increased by another 2 percent on Thursday. The newest rise is the fourth in the past two months and brought the pump price of a liter (nearly a quarter gallon) of 95-octane unleaded gasoline in İstanbul up to TL 4.70 ($2.64) from the earlier TL 4.61. The 97-octane unleaded gasoline, intended for vehicles with engines larger than 2000 cc, was being sold for TL 4.78 per liter (or over $10 per gallon). Its price before midnight on Thursday was TL 4.70.

Consumers are angry at the country's administration for the world's most expensive fuel prices -- nearly 70 percent of which are taxes paid to the government. Yet the ruling Justice and Development Party (AK Party) asserts that it has been decreasing the proportion of taxes in pump prices ever since it took office in late 2002. However, such reductions have not effectively translated into downward pressure on what consumers pay for fuel because Turkey imports almost all of its oil in US dollars, and pump prices are therefore also dependent on crude prices and the value of the American currency.

“What do we have to do now -- burn our vehicles for example -- to make our voices heard?” lamented Consumers Union President Nazım Kaya in an interview with Today's Zaman. “We've done every kind of protest except disrupting the flow of daytime traffic because we have respect for our people. Yet all have been in vain,” he continued.

The rises were not something peculiar to the past few months but rather an issue that has always been in place. The price of a liter of 95-octane gasoline, for example, was only TL 0.58 in 2000. So it goes without saying that Turks are now paying for gasoline roughly eight times more than what they used to do at the beginning of the new millennium.

“Now, we only expect the government to act with a conscience. Or the Energy Market Regulatory Agency [EPDK] should send a clear and strong message to it for the world's highest fuel taxation rate,” Kaya said.

Naturally, people's distaste of rising prices has reflected upon their use of gasoline over the years. According to the latest available figures, gasoline consumption declined by 24.8 percent, from 2.80 million metric tons in 2000 to 2.11 million metric tons in 2010, although vehicle sales rose by 80.7 percent in the same period.

High gasoline prices have also led Turks to prefer diesel engines, pushing diesel consumption to increase by almost 70 percent, with 13.78 million metric tons consumed from 2000 to 2010. The highest increase was witnessed in LPG consumption, which rose by 95 percent in the given period, nearing 2.5 million metric tons.

Weakening lira, rising crude on Iran tension

The greenback has strengthened against the Turkish lira from below TL 1.75 on Feb. 19 to its present level of more than TL 1.78. The price of a barrel of crude oil, likewise, jumped to $105 from below $100 in a month because of the tension between Iran and the West over the Middle Eastern country's controversial nuclear program, which it insists is only being developed for peaceful purposes. Suspicious of Iran's intentions, the UN has implemented economic sanctions against the country, and the US has even tightened its grip by taking even further measures. The US and Israel also have not ruled out a war with Iran.

Growing weary of Iran's inability to prove to the international community that its nuclear program is peacefully intended, as it claims, Ankara has made clear a number of times recently that it seeks a quick resolution of the issue. Yet, it also disapproves of a military confrontation with Iran, while there is still room for diplomacy.

Turkey's current account balance is highly sensitive to changes in energy prices. The country's dependency on foreign energy continues to increase in parallel with its relatively faster economic growth, and it is not easy for Turkey to alleviate this dependence in the short-to-medium term. Every $10 increase in crude prices costs Turkey an extra $4 billion per year.

“We are sorry to see external problems hurt Turkey's relatively more profitable oil procurement deals with its trade partners,” Energy and Natural Resources Minister Taner Yıldız said in late February.

The AK Party's Medium-term Economic Program (OVP) envisages 4 percent growth for the economy this year over the preceding year, while the program estimates year-end inflation at 5 percent. With the rise in oil prices due to the issue with Iran, one critical concern for Turkey is that it will also drive up natural gas prices, which are determined accordingly. This could directly increase electricity production costs, putting a burden on the country's industrial manufacturing. At 47 percent, natural gas has the largest share of Turkey's electricity generation costs among other major resources, Ministry of Energy and Natural Resources data show.

The issue is also troublesome for the country with regards to its fight against inflation, which reached a three-year peak of 10.61 percent in January. Although the annualized rate of consumer inflation slightly eased to 10.43 percent the following month, it was still much higher than the 4-5 percent levels achieved last year, which is also the year-end expectation of the central bank for this year.

Finance Minister Mehmet Şimşek defended the government's tax regime earlier this month, saying Turkey ranks sixth among the Organization for Economic Cooperation and Development (OECD) countries that impose the lightest tax burden on their citizens. Speaking at a meeting in Kahramanmaraş on Mar. 9, Şimşek said Turks perceive that they are being “heavily taxed” and that even though some observations support this, a view of the big picture is necessary to correctly understand the situation. He said compared to the OECD average of 34 percent among 34 countries, Turkey had a 26 percent tax rate in 2010, coming in sixth among the least tax paying countries on the list. “This shows the tax burden in Turkey is not as high as thought,” the minister added.

Şimşek explained that, on average, OECD countries impose an income tax that is twice as high as that in Turkey. He noted that the perception of “high taxes” derives from indirect taxes -- which are not directly paid by an individual to the government, such as sales tax -- as these are higher than the OECD average. Noting that indirect taxes make up 47.9 percent of all taxes in Turkey, he said, “In this term, we plan to increase the tax collection rate to reduce tax evasion and to increase our tax income without imposing more taxes on the people.”

Yet consumers, being sandwiched between high fuel taxes and rising crude prices and a strengthening dollar against their national currency, are demanding that the government puts an end once and for all to their plight. "We thought this government was to bring prosperity and peace. Where are they?" Kaya asks.

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